Texas State Securities Board

Mind Your P’s: Investment Pitches, People, and Products to Avoid

Texas State Securities BoardThis Investor Alert is based on the State Securities Board’s updated report on Scams and Unsuitable Investments Certain types of investments—even if they are legitimate—should always raise red flags. If an investment seems overly complicated, promises large returns with minimal risk, or claims to be a “can’t miss,” just walk away. Investment Pitches, People, and Products to Avoid.

You may think you’ve passed on an investment that is going to make you financially secure. In fact, you’ve passed on an opportunity that was likely to inflict severe financial damage.

This Investor Alert can help you identify threats to your financial health—the investment products, practices, and, equally important, the people who pitch them.

Unregistered Individuals

Plumbers must be licensed. The same with barbers, realtors, used auto-parts  recyclers, and boot companies (the kind of boot that a company affixes to your truck when you don’t pay your parking tickets).

Yet many investors don’t know that people and firms who sell securities must be registered with the Texas State Securities Board.

Generally, anyone acting as a sales agent for a company selling stocks, bonds, or other investments to the public must be registered to do so.
An investment promoter can’t simply set up a website or YouTube channel and sell investments unless the investments are registered or sold under one of the limited number of exemptions from registration.

Registering with the State Securities Board involves qualifications testing, background checks, and periodic review. To see if a person is registered to sell investments, visit Registration Checks or call (512) 305-8301.

A sales agent who isn’t registered is likely violating the law.

Cash-Outs and Rollovers

It’s common to cash out some of your assets to make a down payment on a house, or pay education costs. Or to move from one registered investment firm to another.

But it’s a different situation when you are solicited to cash out stocks, mutual funds, and even plain old savings accounts for the promise of higher, no-risk returns. You may be told that all you need to do is cash in some of your current holdings and hand them the money to manage. The result may be high commissions for an unscrupulous investment promoter and little or no benefit to you.

People with workplace retirement accounts or those receiving pension benefits – either retirement income or disability payments – should thoroughly examine any offer to cash out some or all of their benefits.

Pension benefits, which provide a monthly annuity payment for life, are a valuable benefit available to fewer and fewer U.S. workers and one not to be surrendered lightly.

One perilous “cash out” scheme is a pension advance transaction in which a pensioner turns over future pension payments in exchange for an immediate lump sum of cash.

As always, make sure you deal with a registered investment adviser and take the time to understand the fees and costs and you may pay—and the lifetime benefits you may give up.


The old saying about bank robbers – they go where the money is – applies to today’s cybercriminals.

Hackers are inundating investors and financial firms with phishing attacks, malware, and other types of online attacks to try to trick you or your firm into disclosing your brokerage account or bank information, passwords, Social Security Number, and other discrete information.

The techniques include using spam email and fake websites to convince investors they’re dealing with a legitimate firm. These illicit emails and websites appear authentic, and unsuspecting investors may either click  on links that allow third-parties to steal their information or they may transfer funds to an account that appears to be maintained at their firm.

In reality, the account may be controlled by a crook who is operating in anonymity, overseas, in a country that will not extradite criminals to Texas.

If you have any concerns about a website or email you have received from a financial institution, verify that it’s from a legitimate source.

Also, check your account statements and trade confirmations for any  suspicious activity. If you find a discrepancy, put your questions to the firm in writing so you have a record of your complaint.

Currency Trading

Currency exchange (forex) investing involves trading the currencies of other nations. Investors should keep in mind the enormous complexity of forex since it involves executing forex contracts in the currencies of dozens of countries with different political systems and economies.

Foreign currency is a vast global market where prices are volatile, and loss-es can pile up in a few hours. An individual is taking a huge risk by buying into an investment promoter’s promise that he can predict currency prices and lock in enormous profits with little or no risk.

Currency traders must be registered with one or more federal regulatory agencies and in most cases licensed by the Texas State Securities Board to
sell investments based on forex trading.

Oil and Gas

Oil and gas investments are highly speculative and staggeringly complex to anyone not versed in the energy business.

Yet some investors, attracted by the mythology surrounding the oil  industry, have a blind spot when approached to invest in the oil patch.

It is difficult for a potential investor to investigate a promoter’s claims about how much oil or gas will be produced or the time it will take to  start production. The structure of the investment will affect revenue and potential profits.

In addition, not all investors in oil and gas projects have the expertise to decipher geological maps, production reports, and filings with state energy regulators.

Investors should not rely solely on the promoter’s promises about any aspect of the investment. It’s also critical to know the background of the promoters – some may be inexperienced or have repeatedly failed in  previous ventures, but have not disclosed those facts to investors.

Energy investments can pose a significant risk for individuals whose primary goal is saving for retirement and should be avoided by anyone who cannot afford to strike out when trying to strike it rich.

Cryptocurrency Offerings

Regardless of the price of Bitcoin and other cryptocurrencies – boom, bust, or stagnating in between – there is a continuing steady stream of investment promoters looking to take advance of investors who see virtual currencies as a quick path to wealth.

Investors who were once only comfortable purchasing stocks, bonds and mutual funds from regulated professionals are now using online marketplaces and social media to identify investments tied to cryptocurrencies.

Even seniors and retirees, who traditionally prioritize security over speculation, are being introduced to such things as initial coin offerings and cryptocurrency mining pools.
Cryptocurrency prices are extremely volatile and the investments tied to them operate with hard-to-understand technologies. To a lay person it is nearly indecipherable technology, let alone investment opportunity.

For that reason, some promoters of fraudulent cryptocurrency investments craft their promotions to emphasize guaranteed, secure profits while concealing material information that would otherwise reveal the very real risk of loss of principal or outright theft of funds.

Unscrupulous promoters are unlikely to provide audited records or other financial information that permits independent verification of the ability to ensure the timely return of principal, much less the timely payment of principal plus profits.

Promissory Notes and High-Yield Investment Programs

A promissory note is basically an IOU from a company or individual. The notes are sold to fund everything from property development to oil and gas exploration, or as a way to buy interests in a business partnership.

Sophisticated investors and corporations are likely to have the resources and expertise to evaluate the terms and conditions of promissory notes.

Individual investors may not be able to accurately evaluate the credit-worthiness or prospects of a project that is supposed to generate enough revenue to pay the promised return on the notes.

Private Placement Offerings

Companies use private placement offerings to raise capital without having to comply with the registration requirements of securities laws. These often have a limited operating history, and the investments themselves generally lack transparency.

In exchange for the exemption from registration, companies are allowed to raise money only from “accredited” investors—those having a net worth of $1 million, excluding the value of their primary residence, or annual income of $200,000 or more.

Investors should be careful they’re not putting money into an unlawful private placement or dealing with a promoter who isn’t verifying the accredited status of investors.

Real Estate

Real estate investing is not buying a house or piece of land or even purchasing, rehabbing, and flipping a house.

Investment offerings in real estate are more complicated. They are often sold through investment contracts, notes, and other securities.

Promoters promise steady returns from a variety of investments, including the purchase, rehabilitation and sale of distressed houses and other property; the purchase of mortgage notes and real estate assets; and the development of shopping centers and other projects.

Investors should be skeptical of claims that real estate investment carries minimal risk because it is backed by a “hard asset” – which may or may not exist.

Depending on the structure of the offering, risk factors may include your money being locked in for a long period of time; changes in interest rates that can affect costs and profits; and changes in demographics, property valuation, and rental rates.

Some promoters of fraudulent real estate investments also claim to have special expertise that guarantees investors unrealistically high returns on investment.

Overseas Investments

International investments are often sold with the promise of profits to be made in offshore banks or by selling much-needed products in untapped markets.
But investors should ask themselves if they really understand how money will be made.

In what are called “prime bank” scams, promoters try to entice investors with guaranteed, high-yield returns that can be generated by international banks.

Prime bank promoters specialize in throwing exotic-sounding terms at investors, hoping to impress with references to “Guaranteed Bank Notes,” “Standby Letters of Credit,” and instruments backed by the International Monetary Fund.

In other overseas investments, the State Securities Board has issued sanctions in cases involving real estate in France, medical testing kits in Southeast Asia, and bank deposits in West Africa and the Philippines.

How much could an individual investor possibly know about those investments? Too often, investors make decisions based solely on the profits they have been promised.